Student Loans and the “I’ve-Got-Your-Back” Agenda

June 10th, 2014 at 8:41 pm

The wonk brigade, of which I’m a card-carrying member, has extensively weighed in on the President’s executive order (EO) to expand income-based repayments (IBR) for student loans as well as his endorsement of Sen. Warren’s idea to help borrowers refinance outstanding loans at lower interest rates.

The consensus is pretty mixed, with many arguing that these ideas nibble at the edges of the problem of the mismatch between college affordability and middle-class incomes (I’ve also seen the argument that the Warren idea is distributionally skewed toward the wealthy—maybe, but I’d like to see a distribution table). [UPDATE: Chingos and Akers have precisely this figure–in fact, they had it by last March, so my bad for not seeing it. It shows 40% of the benefits of the refi plan going to the top quarter of households ranked by income, and 43% going to second and third quartiles combined, So, definitely not progressive enough, but benefits do reach the middle and lower-middle classes. Could/should such a plan be income-tested to improve progressivity and reduce its cost?]

I don’t disagree with any of that, though if the expanded IBR actually reaches another five million borrowers, as advertised, that will be a pretty sweeping outcome for a mere EO and another win for the President’s “pen and phone” campaign to get around Congressional gridlock. (His idea to expand overtime pay through a rule change is another excellent example in this rarefied space.)

But what I’d like to focus on here is something else: a piece of the framing and rhetoric in the speech the President just gave announcing the EO, which I happened to hear part of on the radio. I don’t follow every speech, of course, and there’s a lot of usual pot-boiler in here, but something caught my ear that struck me as important, something that I hope grows as a theme in today’s politics.

It’s an idea that I tried to get at recently when I ask why has capital become so much stronger than labor, but politicians don’t frame it that way. Instead, I heard the President talking about ways in which middle-income people need the government to “get their back.” (My italics.)

These rising costs [of higher education] have…left middle-class families feeling trapped. Let’s be honest. Families at the top, they can easily save more than enough money to pay for school out of pocket. Families at the bottom face a lot of obstacles, but they can turn to federal programs designed to help them handle costs. But you’ve got a lot of middle-class families who can’t build up enough savings, don’t qualify for support, feel like nobody’s looking out for them. And…heaven forbid that, you know, the equity in their home gets used up for some other family emergency or, as we saw in 2008, suddenly home values sink and then people feel like they’re left in the lurch.”

Later in the speech, he said:

This year, House Republicans voted overwhelmingly to slash Pell Grants and make it harder for thousands of families to afford college. If you’re a big oil company, they’ll go to bat for you, if you’re a student, good luck.

If it were built upon and connected to a policy agenda, I think what he’s getting at here could really resonate with people. The key insight is that the balance of power is uniquely out of whack. It’s not just that the combination of increased wealth concentration and evermore money in politics means the wealthy are dictating the policy agenda. That’s an old problem in America.

It’s that there’s almost no one on the other side.

The clout of the wealthy relative to everyone will always be high in our political economy, but it is uniquely so today. Interestingly, one of the few ways the middle-class and poor can get anything on the policy agenda is when a zillionaire, like Bill Gates, takes on a cause on their behalf.

The reasons for the lack of countervailing pressures are beyond my pay-grade, beyond the money-in-politics point (which affects both parties) and its corollary–the diminished power of unions as an organizing force for pro-middle-class policies (and they’re still the largest single force in this space)–are obviously in there.

But an “I’ve-got-your-back” agenda built around policies that recognize and strengthen the role of government in providing more clout and more opportunity to those with historically low bargaining power might really give a lot of disenfranchised people something to believe in and fight for.

That is a pretty weak analysis. Try this: College costs go up. Loans are taken out to cover extra unexpected college costs. CEOs are hired to run colleges as profit making businesses. College costs go up as the college presidents and administration grows ever huger, to fit in with the American business model, which is in excess of 2 management layers for every productive employee. The administrators get huge salaries. College costs go up. Loans are taken out to cover the higher tuition that no one could have predicted. College professors become part time employees, seeing their salaries go down. More raises go to administrators, in accordance with the American business model, which is to reward management for everything, including failure. College costs go up. Loans are taken out to handle yet higher tuition costs. Schools start going bankrupt. College costs go up.

Rinse and repeat. It used to be a student could afford to go to school with a Pell grant and work study. Now they can’t even attend community college without a loan.

Student loans fuel the bloated college bureaucracy, so you’re both be right. Student loans are a key aspect of fueling rising tuition. Without easy financing from student loans, including federal and private, there is no way colleges could raise tuition so freely to pay for a bloated administration.
Instead of cutting loans, the government could impose strict conditions on school access. The first condition would to open the books and make public how every dollar is spent. If private colleges refuse they can start using their endowments in place of federally backed loans, and while we’re at it, they could kiss goodbye all federally funded research too. Then same as ACA where insurance companies are required to spend 85% on health care, schools might have to spend 85% on actual instruction. State schools need to reduce their tuition and build their resources to provide a public option. Ultimately, college should be free, as high school became in the 19th century. It’s the G.I. Bill without the conflagration, less than 4% GDP. It’s only an additional 2% since the rich and fortunate already attend, and not everyone will elect four additional years of schooling.

There is an misplaced “be” in the first sentence
“…so you’re both be right.”
which inexplicably belongs in the second sentence of the second paragraph
“The first condition would [be] to open the books….”